A judge has ordered boardroom changes and an independent assessment of Paramount Fine Foods’ financials to resolve a paralyzing dispute between prominent businessman Mohamad Fakih and majority equity investors who sought to remove him as an officer and director of the Lebanese food and restaurant chain he founded in 2007 shortly after immigrating to Canada.

“The deadlock must be broken, or all hands will go down with the ship,” Ontario Superior Court of Justice judge Michael Penny said in a ruling delivered Thursday in the long-running dispute over the food empire that had grown to dozens of locations by 2020.

The judge ordered a three-month suspension of a voting rights agreement that gives Fakih control of Paramount, though his investors Ali Noureddine and Mirza Naeem Javed together own a majority of the equity.

But Penny said it was not in the best interests of Paramount to remove Fakih, who “has knowledge of Paramount that no one else has” and guided the food company through the challenging years of the COVID-19 pandemic.

“His skill and ability to manage certain aspects, at least, of the companies’ operations was not disputed by anyone,” the judge said, adding that Fakih “has managed to keep the enterprise going in very adverse circumstances.”

But he said Fakih had been “obdurate and uncooperative” with his investors, who argued in court documents that he had transferred funds between Paramount and a number of companies he owned outside the food business, and used money to fund personal interests including expensive vehicles and real estate.

Sam Presvelos, a lawyer for Fakih, noted that the majority shareholders failed in their bid to remove Fakih as a director of Paramount.

“Mr. Fakih is an integral part to Paramount and has consistently supported the company over the years,” Presvelos said. “He is looking forward to the independent shareholders audit ordered by the court that will show the extent of financial contributions and sacrifices he has made for the company.”

The investors also said Fakih did not properly maintain company books and records, and that it was difficult to assess the condition of Paramount even when they retained a third party, A. Farber & Partners Inc., to assess the state of the business and potential restructuring options.

Penny said Fakih’s conduct raised serious issues of oppression for trial and that material filed contained “ample evidence of questionable transactions which reveal self dealing on Fakih’s part.”

These included Paramount paying a $2.3-million mortgage on Fakih’s home, and leasing a high-end Mercedes in March at a total cost of $400,000 “at the same time Fakih was claiming that Paramount could not afford to pay auditors to audit Paramount’s financial statements,” the judge said.

On the basis of his findings, Penny granted the emergency relief requested by the majority shareholders, including the suspension of the voting rights agreement, the appointment of a neutral third director and a broad forensic accounting investigation.

The judge ordered that a third director be appointed within 10 days to try to break the deadlock. If Fakih and his investors cannot agree on an additional director, they must each present a candidate to the judge.

They were also ordered to retain someone to conduct an audit of Paramount for the years 2016 through 2021. The judge said he had ordered Grant Thornton LLP be appointed in April to conduct these assessments, but that did not occur.

“It is clear that the deadlock will continue unless dramatic action is taken,” Penny said in his ruling. “The status quo involving the deadlock of the directors and shareholders, the inability of Paramount to rationally assess the problems it is facing, the lack of trust and competing litigation claims between the shareholders — these factors are, if they continue, likely to bring about financial disaster.”

He ordered Fakih to pay costs in the latest court dispute, amounting to $102,500.

John Pirie, a partner at law firm Baker McKenzie LLP and counsel for the majority shareholders, said his clients are pleased with the decision, and “look forward to working with the new board to strengthen Paramount’s business in 2023.”

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